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“… There’s a way to know exactly when to exit and how much you’re willing to accept. More importantly, the [market] can gap as much as it wants, but you’d lose only the predetermined amount you decided upon when you entered the position.”- Jim Augustine (square brackets mine)

Hello:

It’s been decided that I’d report my trading results on monthly basis, especially the trading results from the strategies I use to give my trading signals. These trading strategies are used on the accounts made accessible to my clients who see how I open trades and manage them, and thus trade accordingly. The trading results from my weekly trading update wouldn’t be included because I’ve already made references to them in my articles.

The USDCAD Hedging strategy account grew by 1.6% last month. You know how much this would be if you were managing millions of dollars. This strategy, which is non-directional and suitable for passive investors, ensures that profits are made regardless of market directions. The USDCAD is a slow pair which mayn’t experience upwards or downwards moves of up to 150 pips for many weeks in a year. This characteristic allows very slow but steady growth on my account on annual basis.

The Gap Trading strategy has been modified to give more and better trading signals (this modification would be explained in a future article). The strategy account grew by 3.2% last month, excluding open profits. This 3.2% increase resulted from around 640-pip gain since I use 0.01 lots for each $2000 in the account. If this risk was increased fourfold, the account would’ve grown by 12.8%. But this kind of risk is too high for me. I’m a funds manager, not a gambler: little drops of water make a mighty ocean

If one uses high risk, one might see one’s trading account sailing thru the air in one period. The next period the account would be plummeting to the ground. Behold the trader (using high risk) that suffers heavy losses with the most hyped and the supposedly best strategy in the world! Behold the trader (using low risk) that survives and makes profit with a terrible system!

This issue of risk management bears repetition. It’s true that there’s no such thing as risk-free trading, and that’s why the risk MUST be managed. Always put capital preservation, not profits, first

In 2008, Dr. Van Tharp declared in an interview that, with a terrible system, you still have the chance to meet your objectives through position sizing. When you have a superb system but don’t understand position sizing, you probably won’t meet your objectives. Picking the right entry prices has nothing to do with trading success and neither do amazing trading systems with high percentage wins. It’s evident that if traders would be more interested in sound position sizing techniques that work, the experience of many traders would change for the better. Doing so, you can escape many trading woes and anxieties that majority of traders suffer today.

Satisfaction outweighs the sacrifice when attempts are made to apply sound risk management.

You may consider signing up for my trading signals services and see how I survive the markets uncertainties and move ahead gradually, and do so along with me. You can do that here: http://www.fxinstructor.com/en/analytics/ituglobal

Also, the team at Fxinstructor.com now concentrates their efforts on helping traders make progress to the greatest extent possible. There are immense benefits in taking advantage of their services. You’d be glad you do so.

NB: Please watch out for my coming articles with these titles: ‘Resist the Lure of High Risk – Part 3’ ‘Is There Really the Best Time to Trade?’ ‘Carrying Out Stealth Raids in Weak and Strong Markets,’ ‘Worst-case Scenarios’, ‘Effective Swing Trading in Forex’, ‘Advanced Gap Trading’, ‘3 Recent Gap Trades,’ ‘Trading for a Livelihood,’ ‘If I Were a Trading Neophyte…,’ ‘Developing the Right Attitude towards Losses (Part 2),’ ‘The True Holy Grail,’ ‘Achieve Success through Sensible Risk-to-reward Ratio (An Interview with A trading Enthusiast),’ ‘Monthly Trading Report (June 2011),’ etc.

This report is ended with more quotes from Dr. Mircea Dologa:

1. “Even if you’re a lucky fellow, and have discovered either by your own study or thru mentorship, the most consistent and symbiotic trading technique, there remains the problem of assimilating and practicing it.”

2. “A professional traders has a few emotions. Many readers would be surprised to hear this, but we’ll mention the word ‘confidence’… and they’ll understand it rather quickly. Nothing can be done without it. No trader will use a trading strategy without having a full confidence in its efficiency. But it’s hard work to acquire confidence. It takes many months, even years to get acquainted with the optimal tools that you’ve tested and which are prone to give the best trading results. Confidence is a rare friend that once acquired, will assist the trader day-after-day.”

3. “You attitude is based on the confidence that you have in your store of experience. Keep in mind that slumps and joys are two indispensable emotions in trading process. Being under pressure shouldn’t change this attitude. At the end, there’ll always be a new day and the sun will rise again. But keep one thing in mind: preserve your capital by holding to the rules concerning the ‘tiny bits’ stop losses.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Email: amustapha@fxinstructor.com

Yahoo! Messenger ID: saazalmu

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

NB: There is risk of loss in trading, but it is possible to be a successful trader.

About Me
My Articles

“The weaknesses of a trader can bring her/him down, if she/he doesn’t correct them as soon as they reveal themselves.” – Dr. Mircea Dologa

“The market will place us in a position where we can find out what we’re made of so that we can choose to correct our weaknesses (and also to see our good traits and try to strengthen them).” – Joe Ross

Hello:

My heart goes to all traders who’ve suffered big losses and/or margin calls. I believe it was not your intention to enter the market to purposely ruin your accounts, but you were either misguided or weren’t adequately educated about safety measures in trading.

The scars of margin calls are everywhere.

Awareness of the importance of risk management has been heightened in recent years. But has greater awareness reduced the number of incidents of margin calls? No, that hasn’t been the case. Greed among traders is prevalent. It’s clear that many traders are willing to ruin their accounts rather than change. Many traders prefer to go thru harrowing experiences before they can accept this. If the future were accurately predictable, the majority of traders wouldn’t be losing, and this is the reason why I often recommend very small position sizing methods in my trading strategies, but they’re contrary to what many traders out there would like to do.

Sadly many traders suffer huge losses due to high risk, and they go on saying that trading the financial markets online is a ruse. For example, some blame the markets for the losses they suffer, all of which are their own doing. Novices are easily deceived by vendors who talk about nice profit and neglect or fail to exemplify risk control. If a software vendor or an analyst tells you that you can make 30%-100% per month with a strategy, did you know that you’d also be exposed to 30%-100% drawdown per month? Can you handle this amount of loss? Even 40% loss is too much for most professionals to handle – not to mention novice traders. It’s the same story with every analyst or vendor: If you follow their dangerous position sizing recommendations in your trading and get it wrong, you’d be the one to lose your money, not the analyst or vendor.

Marko Graenitz, in one of his cover stories, reveals that the worst bankruptcies in history did not just happen ‘by accident,’ but were primarily caused by the excessive use of leverage. There are parallels here to many private traders who may have had a good strategy, but ultimately entered too large positions and then ruined their account in a losing streak. It’s somewhat reassuring and sobering at the same time that even a billion-dollar hedge fund controlled by Nobel laureates has imploded because of this fundamental mistake. Studies show that it’s often harder to recover heavy losses sustained on trading portfolios. If the losses are small, eventual recovery would be easier. But if the losses are huge, eventual recovery would be very much harder.

Many novices became bitter as a result of what they suffered in the markets. Wise traders, on the other hand, viewed what they suffered as a psychologically strengthening experience. If you had a bad experience in the market, you needed to feel as though you were being trained for glorious days ahead. As for me, I learned the value of risk management from what I passed thru in the past. I made sure I used my lessons as a catalyst for better trading performances and never regretted it. I saw how trading portfolios could survive provided we stop emphasizing huge profits. You must always be cautious and constantly aware of the dangers of targeting high returns in a short period of time. It doesn’t matter whether one is managing a billion dollars or a thousand dollars; both amounts can experience huge drawdowns or be kept safe. It doesn’t matter whether you’re the most popular analyst in the world; everybody is subject to the uncertainties of the future events. Now, if I ever feel I need bigger returns, I reflect on my past experiences. I’ve often wondered if I would’ve been a good trader if I hadn’t passed thru a trying experience. I was convinced that the market is the best teacher for foolish traders.

Do honest-hearted traders find it difficult to adjust to the kind of trading mindset required for lasting success? One of the traders I personally mentor reports: “At first, I found it difficult. Many times I felt like giving up. But I’m glad I didn’t, for I came to appreciate and love the right mindset and effective risk management in trading. Being aware of the need to watch our wallet made us focus on the noblest trading target, which is safety, and not to get distracted by greed. I and my colleagues thought less and less about huge profits and more and more about capital preservation. Indeed, the survival we began to enjoy was unsurpassed. In terms of profits, we mightn’t even make up to 10% per annum (but sometimes we make between 40% – 60% per annum), but we were completely immune from huge drawdowns. We saw risk management in action despite the uncertainties of the markets – not just in connection with capital preservation but in protecting our nerves. Now we can face the future with confidence. When you don’t go after huge profits, that’s when you truly rely on safe position sizing and witness a permanent safety of your capital.”

Are you willing to lose your money before you appreciate its existence? Don’t forget that the first goal of every sane trader should be capital preservation. There’s always another opportunity, but only if you’re still in possession of your capital. If you wait until you receive a margin call before you take risk management seriously, you may find that you end up struggling with emotion of self-pity instead of dealing with the challenge successfully. Tell yourself that its more important for you not to go broke than to get rich quickly. Back your words with a position sizing method that can help you meet this objective.

I implore you, think about the techniques that successful funds managers may have used in keeping their funds permanently safe. Decide which of their risk management strategies you’d like to imitate when trading. Also decide which, if any, bad attitudes and trading methods you want to avoid repeating. Discuss your conclusion with an experienced trading risk manager. A novice trader can succeed more quickly if he takes safety measures very serious instead of thinking about getting a magical entry system which supposedly bring colossal profits.

NB: Please watch out for my coming articles with these titles: ‘Carrying Out Stealth Raids in Weak and Strong Markets,’ ‘Worst-case Scenarios’, ‘Effective Swing Trading in Forex’, ‘Advanced Gap Trading’, ‘3 Recent Gap Trades,’ ‘Trading for a Livelihood, ‘If I Were a Trading Neophyte…,’ ‘Developing the Right Attitude towards Losses (Part 2),’ ‘The True Holy Grail,’ ‘Monthly Trading Report,’ etc.

I end this article with quotes from Dr. Van K. Tharp:

1. “Do you remember your last big trading loss and how painful it was? Did it leave you shaking your head, clenching your jaw, feeling tight in your gut, or just staring at the screen in shock?”

2. “In terms of your equity, how big was that last big loss? Was it more than 1% of your equity? If it was, beware! You may be risking your entire trading account by not understanding the concept of position sizing strategies!”

3. “When applied to your trading system, your position sizing strategy—not the indicator, entry, or even your trading system—determines your profits and losses… If you risk more than 1% of your equity per position, you take on a higher risk of burning through your equity. Stay safe to live long enough in the markets so you can learn and improve.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha
Forex Signals Strategist, Funds Manager &Coach

Email: amustapha@fxinstructor.com

Yahoo! Messenger ID: saazalmu

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

NB: There is risk of loss in trading, but it is possible to be a successful trader.

About Me
My Articles

MASTERING THE TRICKY HOLES

?Chance only favors prepared minds?. – Louis Pasteur

Hello:

Peter Soodt, Scott Andrews and Eric Waddell are skillful gap traders; though in other types of the financial markets. One thing the human brain can do – in addition to myriads of awesome achievements made by it ? is that wealth can be built by it regardless of the uncertainties of the future. Necessity will forever be the mother of invention. The unpredictability and uncertainties of the financial markets have led to the development of some permanently successful trading strategies. Here lies before you a profitable trading strategy for swing traders, used in managing trading portfolios, and of course resulting in decent profits on annual basis: something you?ve been dreaming of.

Nature of Gaps and Market Participation
A gap is defined as a price level on a chart where no trading occurred. These can occur in all time frames but, for the purpose of this Forex gap trading strategy, we?re mostly concerned with hourly charts. A gap on a chart happens when the market closes at one price but opens the following day at a different price. Why would this happen? This happens because ?buy? or ?sell? orders (usually caused by pre-market events), are placed before the open that cause the price to open higher or lower than the Friday’s close. Normally, the most common time to see gaps occur are over times where a specific market is not being traded, like stock market overnight and Forex market over the weekend. There are breakaway gaps which happen as breakouts in a sideways price movement, continuation gaps (also runaway gaps) which occur during strongly trending market and exhaustion gaps that happen at the end of primary trends ? thus signaling the beginning of a noteworthy reversal.

Since gaps are generally caused by market participants, it?s important to know if the price movement is caused by novices who make impulsive orders or by experts who make rational and logical decisions. The trading masses will always leave their trail on the price chart. In order to comprehend this concept better, you must bear it in mind that experts would like to sell when the investing public feels it?s clearly time to buy: they buy when the investing public thinks the market is clearly southbound. Amateur traders do exactly the opposite of what professional traders do. Amateurs would buy only after some have bought and made money and vice versa; just when pros are preparing to take opposite directions. But little did they know that when the market sentiment is overly bearish or bullish, a strong reversal is imminent.

For this strategy, if the market gaps up after a wave of buying has already occurred, it shows what amateurs are doing. If the market gaps down after a wave of selling has already occurred, it also shows what amateurs are doing at that moment. Therefore there are clear steps a professional trader should take. Gaps can provide nice swing trading profits but trading them requires some expertise ? especially in terms of entries and exits. The advantage is that you can sometimes make big profits, quickly, and with a measure to limit risk if things go wrong. This is something each Forex trader should take advantage of.

Signals Filter Rules
Price action and the Williams? Percentage Range are used to generate signals on hourly charts (to avoid too many or too scanty signals). Based on past experiences, a gap that forms on MT4 from one reliable broker must also be visible on MT4 from another reliable broker. For example, I consider a signal only if the gap on the MT4 from Alpari UK also appears on the MT4 from FXOpen. Otherwise the signal would be disregarded. Besides, a gap trade isn?t immediately taken when entry criteria are met; I wait until the close of the New York Session. If a gap occurs from a price action, it?s taken only after the William?s % Range goes into the overbought or the oversold region within 24 hours, relative to whether I?m planning to buy or sell. In addition, if the number of signals is less than 3, no positions would be assumed for that week unless there are mid-week gaps (rare occurrences).

Position Sizing Methods and Exit Techniques
The position size is typically 0.01 for each $1000, but 3 different exit techniques are devised:

Exit technique #1: A position is opened with a Stop of 100 pips and a target of 200 pips. This generates the biggest profit and the risk to reward stands at 1:2.

Exit technique #2: Two positions are opened per signal with 0.01 lots for each $1000. The Stop for both trades is 100 pips each, while the target for the first trade is 50 pips and the target for the second trade is 200 pips. This has the second biggest profit and drawdowns are tolerable just like the other 2 exit techniques. This is the technique assumed for our real live accounts.

Exit technique #3: A position is opened with a Stop of 100 and a target of 50 pips. The purpose is to take advantage of short-term movements in our directions. The risk to reward stands at 2:1. The profits are smaller than the other 2 exit techniques, yet it makes nice profits because of a higher long-term hit rate.

Application of Risk Control and Further Trade Management
Predicting short-term moves is much easier than predicting the longer term. Unfortunately, the real money is in capturing longer-term trends. Therefore, I look to capture a small, quick profit but keep a portion of the position as long as the market continues to move in my favor. This allows me to ?eat my cake and have it too.? The risk stands only slightly below one as compared to the reward, but it has the advantage of reducing the potential risk per trade by almost 50% if the price moves by over 50 pips before reversing to hit the Stop. Once again, the exit technique #2 has been chosen for signals generation and on live accounts (which doesn?t mean that other techniques are ineffectual). When 2 orders are opened for a signal, and they move very well in the forecasted direction, the 50-pip target would be hit. Then if the market goes on by 70 pips and above, the Stop is moved to breakeven to eliminate the risk on the remaining trade. If the 200-pip target is reached before Friday, good; but if not, the position is smoothed at the close of the New York Session that Friday.

A Trade Example
There?s a need to show some examples of trades taken with this strategy, but I can only mention one example owing to time and other responsibilities. I?d show further trade examples in my future articles. Please check the accompanying chart. There was a gap down on the EURCHF at one opening of the market and an opportunity to buy emerged when a demand zone was identified. This was a zone where there were more willing buyers than sellers, plus further confirmation was made when the William % Range went to the oversold region. The vertical line on the left show where the trade was opened, while the vertical line on the right shows where it was smoothed. This signal was effective.
Order: Buy
Entry date: January 3, 2011
Entry price: 1.2438
Stop Loss: 1.2338
Exit date: January 4, 2011
Exit price: 1.2638
Status: Closed
First profit target: 50 pips
Second profit target: 200 pips

When Things Go Wrong
Gaps are often filled, but sometimes they mayn?t be filled. Because this strategy anticipates that a gap would be filled, the only thing that can go wrong is when a gap isn?t filled and I?m on a wrong side of a trade. Stop Loss limit helps, but since we?re not 100% sure whether or not a particular gap would be filled, the strategy trades each valid signal until there?s a winning trade. But that?s part of the statistical win-loss ratio one needs to accept right up front. Bad days will happen. But I believe in the statistics that says my strategy will recover. One doesn?t need to get too upset. Even professional poker players lose a game now and then. The worst thing to do is over-react and stop trading after just one bad day or week.

Take Charge of Your Fate on the Markets
Great ideas don?t become reality because some don?t spend the time, effort and resources to make them happen. Taking advantage of the gap trading strategy discussed here can bring about your long-term survival on the markets ? something you?ve been dreaming of. Here too, we?re not afraid of losses, for we know we?ll make more money than we lose (the secret of survival) in the long run. You might want to take advantage of this trading methodology by getting access to an account on which I use it, so that you may trade accordingly. The access can be gotten here:?http://www.fxinstructor.com/en/analytics/ituglobal

NB: While more successful examples of gap trading would been analyzed in future, another effective Forex strategy is coming within the next several weeks ? all for the benefit of my clients.

This article is ended with a quote from Eric Waddell:

?You are not infallible? Even if there is 90% chance of a trade working out, there is a 10% chance it will not. It is that 10% which prompts me to place a stop and realize that I am not infallible and it may in fact go against me. Which is fine, it is all part of trading.?

.

Your questions and opinions are highly welcome

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Email: amustapha@fxinstructor.com

Yahoo! Messenger ID: saazalmu

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

NB: There is risk of loss in trading, but it is possible to be a successful trader.

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